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International Institute of Professional Studies State Bank of IndiaWorlds Largest Centralized Core Processing Implementation Guided by:Dr. Preeti Singh Presented By:Ankur Pandey Namrata PathakIM-2K8-007 IM-2K8-62MBA(MS) 5yrs. Sem-VII MBA(MS) 5yrs. Sem-VIII
Case Study: State Bank of India, Worlds Largest Centralized Core Processing ImplementationCoverageThe implementation of the Tata Consultancy Services (TCS) BaNCS Core Banking at the StateBank of India (SBI) and its affiliate banks represents the largest centralized core systemimplementaion ever undertaken. The overall effort included the conversion of approximately 140million accounts held at 14,600 domestic branches of SBI and its affiliate banks. This is a casestudy that overviews the history of the State Bank of India and details the effort to modernize thebanks core processing systems. It also identifies the drivers to modernization, the critical successfactors, and the conversion methodology.IntroductionState Bank of India (SBI) (NSE: SBIN, BSE: 500112, LSE: SBID) is the largest bankingand financial services company in India by revenue, assets and market capitalization. It is astate-owned corporation with its headquarters in Mumbai, Maharashtra. As of March 2011, it hadassets of US$370 billion with over 13,000 outlets including 150 overseas branches and agentsglobally. The bank traces its ancestry to British India, through the Imperial Bank of India, to thefounding in 1806 of the Bank of Calcutta, making it the oldest commercial bank in the IndianSubcontinent. Bank of Madras merged into the other two presidency banks—Bank of Calcuttaand Bank of Bombay—to form the Imperial Bank of India, which in turn became the State Bankof India. The Government of India nationalized the Imperial Bank of India in 1955, withtheReserve Bank of India taking a 60% stake, and renamed it the State Bank of India. In 2008,the government took over the stake held by the Reserve Bank of India. SBI is ranked #292globally in Fortune Global 500 list in 2011. SBI provides a range of banking products through itsvast network of branches in India and overseas, including products aimed at non-residentIndians (NRIs). The State Bank Group, with over 16,000 branches, has the largest bankingbranch network in India. SBI has 14 local head offices situated at Chandigarh, Delhi, Lucknow,Patna, Kolkata, Guwahati (North East Circle), Bhuwaneshwar, Hyderabad, Chennai,Trivandram, Banglore, Mumbai, Bhopal & Ahmedabad and 57 Zonal Offices that are located atimportant cities throughout the country. It also has around 130 branches overseas. SBI is aregional banking behemoth and is one of the largest financial institutions in the world. It has amarket share among Indian commercial banks of about 20% in deposits and loans. The StateBank of India is the 29th most reputed company in the world according to Forbes. Also, SBI isthe only bank featured in the coveted "top 10 brands of India" list in an annual survey conductedby Brand Finance and The Economic Times in 2010. The State Bank of India is the largest ofthe Big Four banks of India, along with ICICI Bank,Punjab National Bank and HDFC Bank—itsmain competitors. The State Bank of India and its affiliate banks are profiled in Exhibit 1.
Unlike private-sector banks, SBI has dual role of earning profit & expanding banking services topopulation throughout India. Hence, it built an extensive branch network in India that includedmany branches in low-income rural areas that were unprofitable. But, the branches in these ruralareas bought banking services to tens of millions of Indians who otherwise would have lackedaccess to financial services. This tradition of "banking inclusion" led Indias Finance Minister P.Chidambaram to comment, "The State Bank of India is owned by the people of India." A lack ofreliable communications and power (particularly in rural areas) hindered the implementation ofcomputerization at Indian banks throughout the 1970s and 1980s. During this period, accountinformation was typically maintained at the local branches with either semi automated or manualledger card processing. During the 1990s, the Indian economy began a period of rapid growth asthe countrys low labor costs, intellectual capital, and improving telecommunications technologyallowed India to offer its commercial services on a global basis. This growth was also aided bythe governments decision to allow the creation of private-sector banks (they had beennationalized in the 1960s). The private-sector banks, such as ICICI Bank and HDFC Bank,altered the banking landscape in India. They implemented modern centralized core bankingsystems and electronic delivery channels that allowed them to introduce new products andprovide greater convenience to customers. As a result, the private-sector banks attracted middleand upper-class customers at the expense of the public-sector banks. Additionally, foreign bankssuch as Standard Chartered Bank and Citigroup used their advanced automation capabilities togain market share in the corporate and high-net-worth markets.
State Bank of India Core Systems ModernizationDrivers for a New Core SystemSBI had undertaken a massive computerization effort in the 1990s to automate all of its branches,implementing a highly customized version of Kindle Banking Systems Bankmaster core bankingsystem (now owned by Misys). However, because of the banks historic use of local processingand the lack of reliable telecommunications in some areas, it deployed a distributed system withoperations located at each branch. Although the computerization improved the efficiency &accuracy of the branches, the local implementation restricted customers use to their localbranches and inhibited the introduction of new banking products and centralization of operationsfunctions. The local implementation prevented the bank from easily gaining a single view ofcorporate accounts, and management lacked readily available information needed for decisionmaking and strategic planning. The advantages in products and efficiency of the private-sectorbanks became increasing evident in the late 1990s as SBI (and Indias other public-sector banks)lost existing customers and could not attract the rapidly growing middle market in India. In fact,this technology-savvy market segment viewed the public-sector banks as technology laggardsthat could not meet their banking needs. As a result, the Indian government sought to have thepublic-sector banks modernize their core banking systems. In response to the competitive threatsand entreaties from the government, SBI engaged KPMG Peat Marwick (KPMG) in 2000 todevelop a technology strategy and a modernization road map for the bank. In 2002, bankmanagement approved the KPMG-recommended strategy for a new IT environment thatincluded the implementation of a new centralized core banking system. This effort wouldencompass the largest 3,300 branches of the bank that were located in city and suburban areas.The State Bank of Indias objectives for its project to modernize core systems included:• The delivery of new product capabilities to all customers, including those in rural areas• The unification of processes across the bank to realize operational efficiencies and improve customer service• Provision of a single customer view of all accounts• The ability to merge the affiliate banks into SBI• Support for all SBI existing products• Reduced customer wait times in branches• Reversal of the customer attrition trendChallenges for the BankIt faced several extraordinary challenges in implementing a centralized core processing system.These challenges included finding a new core system that could process approx 75 millionaccounts daily; a number greater than any bank in the world was processing on a centralizedbasis. Moreover, the bank lacked experience in implementing centralized systems, & its largeemployee base took great pride in executing complex transactions on local in-branch systems.This practice led some people to doubt that the employees would effectively use the new system.Another challenge was meeting SBIs unique product requirements that would require the bankto make extensive modifications to a new core banking system. The products include golddeposits (by weight), savings accounts with overdraft privileges, and an extraordinary number ofpassbook savings accounts.
Vendor Consortium SelectionRecognizing the need for large-scale centralized systems expertise, SBI sought proposals from anumber of vendor consortiums that were headed by the leading systems integrators. From theseproposals, the bank narrowed down the potential solutions to vendor consortiums led by IBMand TCS. The TCS group included Hewlett-Packard, Australia-based Financial NetworkServices (FNS), and China Systems (for trade finance). Although SBI favored the real-timeprocessing architecture of FNSs BaNCS system over that of the IBM consortiums memopost/batch update architecture, the bank had several concerns about the TCS consortiumproposal. They included the small size and relatively weak financial strength of FNS (TCSwould eventually purchase FNS in 2005) and the ability of the UNIX-based system to meet thescalability requirements of the bank. Therefore, it was agreed that TCS would beresponsible for the required systems modifications and ongoing software maintenance for SBI.Additionally, scalability tests were performed at HPs lab in Germany to verify that the systemwas capable of meeting the banks scalability requirements. These tests demonstrated thecapability of TCS BaNCS to support the processing requirements of 75 million accounts and 19million daily transactions.Tata Consultancy Services and TCS BaNCsTata Consultancy Services, headquartered in Mumbai, India, is one of the worlds largesttechnology companies with particular expertise in systems integration and business processoutsourcing. The company has more than 130,000 employees located in 42 countries andachieved revenues of $5.7 billion in fiscal 2008. Although TCS has long been a leader in coresystems integration services for banks, after it purchased FNS in 2005, the company also becamea leading global provider of core banking software for large banks. The BaNCS system is basedon service-oriented architecture (SOA) and is platform and database independent. In addition toSBI, TCS BaNCS clients include the Bank of China (installation inprocess), China Trust, Bank Negara Indonesia, Indias Bank Maharashtra , National CommercialBank (Saudi Arabia), and Koram Bank (Korea). TCS has also expanded its US footprint with theopening of its largest resource delivery center in North America (near Cincinnati, Ohio) that canhouse 20,000 personnel. The company is seeking to license and implement the BaNCS system inNorth America and recently completed a major part of an effort to ensure that the BaNCS systemmeets US regulatory and compliance requirements.Initial SBI Core Systems Modernization ProjectThe contract for the initial project was completed in May 2002; 3,300 branches were to beconverted by mid-2007. TCS immediately began a six-month gap analysis effort to determine therequired software changes to the BaNCS system. The changes included installing requiredinterfaces with more than 50 other systems as well as making enhancements to support the banksproduct requirements. These product requirements were separated by customer segment to allowthe vendor and bank to begin conversions before all the needed modifications were implemented.They placed a priority on the needed changes that would allow branches with high-net-worthindividuals and then corporate accounts to be converted as soon as possible. Before the firstconversion in August 2003, TCS and HP created the data processing environment for SBI. Theprimary data center was established on the outskirts of Mumbai and a backup center was
established approximately 1,000 miles to the east in Chennai. The centers were equipped withHP Superdome servers and XP storage systems in a failover configuration utilizing HPs UNIXoperating platform.Initial Conversion ProjectThe conversion effort began in August 2003, when SBI converted three pilot branches to theBaNCS system. The successful conversion and operation of the pilot branches was followed bythe conversion of 350 retail branches with high-net-worth customers between August 2003 andSeptember 2004. At this point, the bank intentionally halted the conversions to analyze andresolve reported problems. They analyzed, categorized, and prioritized these problems by type ofresolution (e.g., software, procedural, training) and severity. TCS managed software revisions forthe critical software changes while the branch personnel managed the needed training andprocedural changes. After the software and procedural changes were implemented, SBIconverted an additional 800 branches between December 2004 and March 2005. Unlike in theprevious conversions, this group of branches included predominantly commercially orientedoffices. The conversion effort then refocused on retail branches until November 2005, when thebank paused again to resolve problems that came up during this second group of conversions.After the second round of changes, the system and processes were functioning smoothly, andmanagement believed the branch conversion could be accelerated. An assembly line approachwas then employed in April 2006 to speed the branch conversion process:• Branch personnel were responsible for data scrubbing and cleaning of their customerinformation on the existing system.• Branches were notified three months prior to their conversion date to begin "mock," or test,conversions using a specially created test version of the BaNCS system.• Branches performed several test conversions to ensure the actual conversion went smoothly.As the new core banking system was rolled out across the SBI branches nationwide, a specialprocess was introduced in the nightly batch window to add the new branches. The processincreased batch processing time approximately 20 minutes and typically included addingbranches in groups of 50. This additional process, of course, was unnecessary upon completionof the rollout and has since been removed from the nightly batch window. TCS and local areabranch managers oversaw the conversions, and the banks circle (regional) heads formallyreported the status to the chairmans office. By employing the assembly line approach for branchconversions, SBI was able to convert 1,200 branches in April and May 2006, completing theinitial 3,300-branch conversion two months ahead of the original schedule. The milestones forthe initial core systems implementation project are included in the SBI and affiliate banks coresystems modernization time line in Exhibit 2.
Affiliate Banks ConversionAs the rollout plans for State Bank of India were being finalized, the bank decided to extend thescope of the core banking implementation to include its (then) eight affiliate banks. TCS createda separate processing environment within the Mumbai data center used to support SBI. Theconversion effort for each of the affiliate banks spanned 18 to 24 months; the first six monthswere used for planning, training, and establishing the processing environment for the banks. Thebranch conversions overlapped among the banks, allowing all the affiliate banks to be convertedin 30 months. The project was begun in July 2003 for the State Bank of Patiala and in 2004 forthe other affiliate banks. All of the affiliate bank branches were converted to the BaNCS systemby the end of 2005, as reflected in Exhibit 2.State Bank of India Full Branch ConversionThe success of the initial 3,300-branch conversion for SBI demonstrated that:• TCS had the technical capabilities to support the banks IT initiative and scale of operations.• Bank personnel had the skills to adopt new processes and support the conversions.• The Indian customer base would react to new technology by adopting new electronic servicesand demanding new, more sophisticated banking products.
• An assembly line approach could be used effectively to support large-scale branch conversions.Given the success of the initial project and SBIs desire to offer new products to all of itscustomers, a new IT plan was created that would encompass all branches. TCS and the bankwould have to demonstrate the capability to process 100 million accounts in a single processingenvironment. TCS and HP then conducted another scalability test in September 2006 todetermine if the system could process SBIs entire base of 100 million accounts (excluding theaffiliate banks, which use a separate processing environment) with sustained peak onlinethroughput of 1,500 transactions per second. They conducted the test at HP Labs in Cupertino,California, using two 32-CPU HP 9000 Superdome application servers and two 32-processorItanium Core HP Integrity servers for the database. The test achieved a sustained peak real-timetransaction rate of more than 1,575 transactions per second, meeting the projected processingdemands of SBI. Additionally, batch tests were run for both deposits and loan accountprocessing. The month-end batch process for loans required 1 hour and 5 minutes, and depositprocessing was completed in 2 hours and 27 minutes. These benchmarks were audited by Ernst& Young, and the test results are highlighted in Exhibit 3.Based on the successful scalability test, SBI decided to convert the approximately 6,700remaining SBI branches to the BaNCS system. The conversion of the remaining branches beganin June 2006, with the stated goal of completing the conversion by year-end 2008. Utilizing theassembly line conversion approach established in the initial phase, the bank converted 1,400 of
these branches by March 2007. Because the conversion methodology and BaNCS system werethoroughly proven and stable, the assembly line conversion approach allowed the bank tocomplete the conversion ahead of schedule. Between April 2007 and March 2008 (the banksfiscal year end), SBI converted 4,600 branches to the new system. The remaining branches wereconverted between April & July 2008.Critical Success FactorsLarge-scale core systems implementations are typically the most costly and risky IT projectsundertaken by banks. Failures of core systems projects are not uncommon at large banks andresult in both financial impact and lost business opportunities. Further, failed projects lead otherbanks to delay needed core systems replacements because they measure the risk of failure againstthe potential benefits of a new system. We believe several critical factors contributed to successof SBI core implementation effort: Senior management commitment: The project was drivenby the chairman of SBI, who met every month with the information technology (IT) and thebusiness sector heads. The chairman monitored the overall status and ensured that sufficientresources were allocated to the project. TCS senior managers were thoroughly committed to theproject as well and periodically met with the SBI chairman to review the project status. Staffingand empowerment of project team: The core banking team consisted of the banks managingdirector of IT acting as team head and 75 business & IT people selected by the bank. TCS alsostaffed the project with approximately 300 IT professionals trained on the BaNCS system.Importantly, the SBI business people were viewed not just as contributors to a key project but asfuture bank leaders. This team reported to the SBI chairman and was empowered with alldecision-making authority. Ownership by business heads: The regional business line headswere responsible for the success of conversion of their respective branches and reported thestatus to the chairman. Thus, the business heads objectives were aligned with those of the projectteam. Focus on training: SBI used its network of 58 training centers across India to trainemployees on the new system. TCS personnel first educated approximately 100 SBI professionaltrainers, who then trained 100,000 SBI employees at the centers; the remaining employeestrained at their respective job sites.Benefits of New Core Systems ImplementationThe new core system has resulted in benefits throughout the bank for both the customers and theemployees of SBI. For example, the new core banking system has allowed the bank to redesignprocesses. It established 400 regional processing centers for all metro and urban branches thathave assumed functions previously performed in the individual branches. The bank recentlyreported that business per employee increased by 250% over the last five years.The bank has achieved its goal of offering its full range of products and services to its ruralbranches. It delivers economic growth to the rural areas and offers financial inclusion for all ofIndias citizens. Implementation of the TCS BaNCS system has provided the bank with theability to consolidate the affiliate banks into SBI. In fact, the bank recently completed theconsolidation of State Bank of Saurashtra into SBI. The bank has reversed the trend of customerattrition and is now gaining new market share. Completion of the core conversion project hasalso allowed the bank to undertake several new initiatives to further improve service and supportfuture growth. These initiatives include the deployment of more than 3,000 rural sales staff,
redesign of over 2,200 branches in the last fiscal year, opening of more than 1,000 new branches,establishment of a call center, and an active plan to migrate customers to electronic deliverychannels. The improvement in productivity and growth of business for the SBI Group is reflectedin Exhibit 4.
SummaryThe implementation of the Tata Consultancy Services (TCS) BaNCS system at the State Bank ofIndia (SBI) represents the largest core systems project ever undertaken. The success of thisproject should encourage other large banks to begin projects to modernize their core systems.The use of a UNIX-based platform to process more than 100 million accounts daily demonstratesthat tier 1 banks can use a mainframe alternative for their core processing. Although we expectthat the majority of these banks will continue to rely on the IBM mainframe for core processing,they can fully consider the benefits of utilizing a UNIX-based platform. SBIs achievementdemonstrates that attention to critical factors is crucial in implementing new core systems. Thebanks senior management commitment, business line involvement, project team staffing andempowerment, and extensive employee training were all key contributors to the success of theproject. Management also recognized the need for a proven systems integrator that possessed in-depth expertise in both business and technology. Core systems modernization has allowed theState Bank of India to centralize computer processing and operations functions, offer newbanking products to all the citizens of India, reverse a trend of customer attrition, and consolidateits affiliate banks. Additionally, the bank can now further expand its product offerings andimprove customer service.SWOT AnalysisStrengthsSBI is the largest bank in India in terms of market share, revenue and assets.As per recent data the bank has more than 13,000 outlets and 25,000 ATM centres.The bank has its presence in 32 countries engaging currency trade all over the world.The bank has a merged with State Bank of Saurashtra, State bank of Indore and the bank isplanning to go further acquisition in the current FY2012.SBI has the first mover advantage in commercial banking service.SBI has recently changed its vision and mission statements showing a sign of inclination towardsnew age banking services.WeaknessLack of proper technology driven services when compared to private banks.Employees show reluctance to solve issues quickly due to higher job security and customers’waiting period is long when compared to private banks.The bank spends a huge amount on its rented buildings.
SBI has the largest number of employees in banking sector; hence the bank spends aconsiderable amount of its income in employee’s salary compensation.In spite of modernization, the bank still carries the perception of traditional bank to new agecustomers.SBI fails to attract salary accounts of corporate and many government sector employees salaryaccounts are also shifted to private bank for ease of operations unlike before.OpportunitiesSBI’s merger with five more banks namely State Bank of Hyderabad, State bank of Patiala, Statebank of Bikaner and Jaipur, State of bank of Travancore and State bank of Mysore are inapproval stage.Mergers will result in expansion of market share to defend its number one position.SBI is planning to expand and invest in international operations due to good inflow of moneyfrom Asian Market.Since the bank is yet to modernize few of its banking operations, there is a better scope of usingadvanced technologies and software to improve customer relations.Young and talented pool of graduates and B schools are in rise to open new horizon to so called“old government bank”.ThreatsNet profit of the year has decline from 9166.05 in the year FY 2010 to 7,370.35 in the yearFY2011.This shows the reduction in market share to its close competitor ICICI.Other private banks like HDFC, AXIS bank etc.FDIs allowed in banking sector is increased to 49% , this is a major threat to SBI as people tendto switch to foreign banks for better facilities and technologies in banking service.Other government banks like PNB, Andhra, Allahabad bank and Indian bank are showing.Customer prefer to switch to private banks and financial service providers for loans andmortgages, as SBI involves stringent verification procedures and take long time for processing.